The.Economist.2007-02-10 (966424), страница 39
Текст из файла (страница 39)
There is also a strong incentive to maximise long-term value—which is what stockmarketinvestors are valuing in an initial public offering (IPO). Asset stripping is rarely the best long-termstrategy. Even when they sell—at least in an IPO—private-equity firms often retain a significantshareholding for years after.This claim has some academic support.
In a recent study, “The Performance of Reverse LeveragedBuyouts”, Jerry Cao of Boston College and Josh Lerner of Harvard Business School, examined the post-IPOperformance of nearly 500 companies floated by private-equity firms in 1980-2002. They found the sharesof the firms sold outperformed both the overall stockmarket and shares issued in other IPOs that were notbacked by private equity. Highly leveraged firms performed no worse than those with less debt.
BiggerIPOs backed by private equity did even better than smaller ones.But Messrs Cao and Lerner sounded a note of caution. Those firms that were owned by private equity forless than a year performed relatively poorly, suggesting that “buying and flipping” back to the market—increasingly common nowadays—is a less useful role for private equity than building improvements intothe business over a few years.Old handsExperience also counts for more.
Private-equity firms used to be run only by financiers, but they are nowadding partners (albeit not as fast as some would like) who have run big companies. These includesuperstars such as Jack Welch, formerly of General Electric (GE), and Lou Gerstner, once head of IBM. Ahuge service industry has grown up to help, providing lots of work for consultants and headhunters.Bidding consortia allow generalist firms to team up with specialists to gain expertise. Silver Lake, forinstance, is much sought-after by clubs bidding for technology companies; Providence Equity Partnersplays a similar role in media deals.Firms in private-equity portfolios are free of the most onerous regulations to which public companies aresubjected, such as aspects of America's Sarbanes-Oxley act, which was rushed into law after the collapseof Enron.
They are subject to less scrutiny in the press, especially when it comes to short-term dips inprofits. And they can pay executives whatever they wish without facing an uproar. Compared with publiccompanies, private-equity firms tend to be more generous in rewarding good performance, but theypunish failure more heavily. Given that many of the most talented executives are risk-takers who want toget rich, it is no surprise that many are switching to private equity.The “drain of management talent at all levels to private equity is one of the main reasons I am open totaking the firm private,” the boss of a company with a market capitalisation of $16 billion recently told TheEconomist.
That is the most striking difference between private equity today and in the 1980s, saysChicago's Mr Kaplan. “In the 1980s company bosses were implacably opposed to LBOs. Now they see anopportunity to be able to do a better job and be better paid when they succeed.”Many bosses have become evangelists for private equity.
Cristóbal Conde, the boss of SunGard, is quick toenthuse about how much more helpful his financial software company's new private-equity owners werethan he expected, encouraging him to concentrate on long-term growth.More threatening than criticism are the problems of success. With so much interest in private equity, moremoney than ever is chasing deals.
To increase the number of deals they can do, several of the biggerfirms are said to have become interested again in hostile takeovers, at least for the funds they are nowraising. Club deals may also pose difficulties, especially if things do not go according to plan and partnershave a difference of opinion.And there are the diseconomies of scale common to any business that has grown so far from itsentrepreneurial roots. Not for nothing have the biggest private-equity firms been called the “newconglomerates”. They are sprawling empires, with extremely diverse firms to manage.
For example,Blackstone's portfolio includes stakes in Michael's, an arts and crafts retailer; Emcure Pharmaceuticals;Deutsche Telekom; Orangina, a drinks firm; FGIC, a bond insurer, and Houghton Mifflin, a publisher. Italso owns part of SunGard in partnership with KKR.
KKR's assets include HCA, a health-care firm; NXP,once the semiconductor business of Philips; Primedia, a publisher; Sealy, a mattress-maker; and Toys “R”Us.Can private-equity firms manage their empires? Harvard's Mr Lerner worries about the spread ofbureaucracy and in-fighting, including battles over how to share out the spoils when the performance ofdifferent parts of the firm varies sharply. He points to Carlyle as a good example of a firm tackling thesedifficulties with its centralised, team-building “One Carlyle” process. As the founders step down at severalof the bigger private-equity firms, succession may add to the burden.When the credit stopsThe credit markets show no sign of losing their appetite for lending. On the contrary, private-equity firmsreport turning down offers of credit because they are too generous.
Nonetheless, leverage is risingsteadily, to worrying levels. One day the market will dry up, perhaps suddenly, and what will happenthen?Chicago's Mr Kaplan is surprisingly optimistic. The repayment terms on loans to private equity are farmore generous than in the 1980s, when repayment of the principal started immediately. Now there isoften no requirement to start repaying the principal until after seven or more years. As a result, privateequity firms are likely to have a lot of time to put things right if one of their firms gets into trouble.The industry also has to watch for a change in the behaviour of public companies, which are starting torespond to shareholder pressure to get a higher price from private-equity bidders.
“Shareholders areincreasingly asking why they are selling at a price less than what it will be worth in the future.” says ColinBlaydon, of the Tuck Centre for Private Equity and Entrepreneurship. GE recently imposed limits on thenumber of private-equity firms that could club together to bid for its plastics division to try to ensure acompetitive auction rather than a carve-up.Activist hedge funds are also putting pressure on likely targets to increase their borrowing.
This, theythink, will both increase the value of the firm in just the way it would under private-equity ownership, andremove one of the main incentives for private equity to buy.Perhaps the greatest threat to the continued growth of private equity is regulation. The burden on publiccompanies may be eased. Sarbanes-Oxley is likely to be given a makeover this year, with its notorioussection 404 on internal controls watered down. On the other hand, politicians may increasingly try toregulate the private-equity industry.One chief executive recently observed: “The moment a public pension fund loses 20% of its value due tosome private-equity investment going wrong, private equity will get its own Sarbanes-Oxley.” The newkings of capitalism must try to prevent this from happening by showing that they really are a force forgood.Copyright © 2007 The Economist Newspaper and The Economist Group.
All rights reserved.About sponsorshipJapan's currencyCarry on living dangerouslyFeb 8th 2007From The Economist print editionSatoshi KambayashiSpeculators and low interest rates have helped cheapen the yen, putting the world economy atriskGet article backgroundTHE yen is perhaps the world's most undervalued currency. It is even cheaper than the Chinese yuan bysome measures. Last week the Japanese currency hit an all-time low against the euro and its real tradeweighted value fell to its lowest since at least 1970, according to an index tracked by JPMorgan. But donot expect the G7 finance ministers and central bankers meeting in Essen, Germany, on February 9th and10th to spend much time discussing the yen, let alone to do anything to support it.American and European policymakers do not see eye to eye on the yen.
The Europeans would like someaction to push up the currency, which, they say, is not bearing its fair share of the dollar's decline. Ourlatest update of The Economist's Big Mac index suggests that the yen is a massive 40% undervaluedagainst the euro. America's big carmakers have also complained that the weak yen makes importedJapanese cars unfairly cheap. However, neither the American nor the Japanese government thinks there isa problem. Hank Paulson, America's treasury secretary, says he is not worried about the yen's weaknessbecause it is market-driven and reflects economic fundamentals—namely low interest rates and a fragileeconomy.
China, in contrast, is accused of manipulating its currency with heavy intervention.Mr Paulson is being short-sighted. Even if Japan is not intervening to hold down its currency, the yen isstill misaligned. A country with one of the world's largest current-account surpluses and low inflation (butno longer deflation) should have a much stronger currency. Japan's economy is no longer flat on its back.Last year it grew by an estimated 2.3%, and it is forecast to maintain a similar pace this year.
As a result,Japan does not need such low interest rates or a super-cheap currency any more. Indeed, Japan'sabnormally low rates could be viewed as a form of intervention to hold down the yen.The Bank of Japan (BoJ) bowed to government pressure and held rates unchanged at 0.25% in January.But figures due on February 15th, which are expected to show that GDP grew at an annual rate of 3.5-4%in the three months to December, could give the bank the green light to raise rates at its next meeting.This weekend the G7 could usefully back such a move.The yen has been pushed down in recent months by the highly profitable “carry trade”. At its simplest thisinvolves borrowing in yen at very low interest rates to buy higher-yielding assets, such as American orAustralian bonds, or even emerging-market debt that offers a still more lucrative interest margin.
Carrytrades weaken the Japanese currency, because investors sell the borrowed yen to convert them into othercurrencies.Carry trades make sense only if the investor assumes that the yen will remain weak. If it appreciated, thiswould increase the repayment cost of yen-borrowing and offset the interest differential. But such anassumption is dangerous when the yen is already so undervalued. In theory, carry trades should not yielda predictable profit because the difference in interest rates between two countries should equal the rate atwhich investors expect the low-interest-rate currency, here the yen, to rise against the high-interest-rateone. But the carry trade turns this logic upside down by causing the yen to fall, not rise.
![](https://s.studizba.com/z.php?f=/templates/si/i/noavatar.png&w=100&h=100&t=1"){kind=avatar}
